By Lauryn Robinson, 3L, The George Washington University Law School
Well, when it comes to the Fifth Circuit, it does not favor races to the courthouse.
The parties and predecessors in this case have been engaged in various disputes regarding a gaming software agreement (Software Agreement) since the early 2000s. In August of 2004, Custom Games Design (Games Design) and Gateway Gaming, LLC (Gateway) entered into the Software Agreement. Here, Games Design agreed to develop games and give Gateway a license to use its proprietary software (Software). If Gateway refused to make payments, hire current Games Design employees, or solicit Games Design employees within 180 days of termination, the Software Agreement was terminated.
By February of 2017, the original parties to the Software Agreement had dramatically altered. Gateway dissolved in January of 2013 transferring its assets to Epic Tech, LLC; Winter Sky, LLC and Frontier Software Systems, LLC (collectively referred to as Epic Tech). While Gaming Design entered into a licensing agreement with Arno Resources (Arno) granting, conveying and assigning all of its rights, title and interest to Software including the right to bring suit arising out of its misuse.
In May of 2013, Arno’s legal counsel sent a demand letter to Epic Tech alleging unauthorized use of the Software. Although the demand letter asserted Arno would pursue all remedies available both at law and equity, it also noted a potential discussion surrounding settlement possibilities.
Instead of replying to Arno’s demand letter by May 22, 2020, Epic Tech replied with a declaratory judgement action in Travis Country District Court. In its action, Epic Tech argued the Software Agreement terminated December 31, 2005; Gateway previously purchased rights to all Software development, and Arno’s claims were released by a previous settlement agreement. In an effort to preserve its rights, Arno filed suit in the Northern District of Georgia alleging violations to the Georgia Uniform Deceptive Trade Practices Act, civil conspiracy, and aiding and abetting a breach of contract through fraud and injunctive relief.
Arno opines the court should use its discretion to dismiss Epic Tech’s action under the anticipatory exception to the first-to-file rule. By filing an action after receipt of a demand letter, Arno proclaims Epic Tech’s suit was improperly filed and deprived Arno of its chosen forum. Epic Tech protests noting its efforts were merely to eliminate a baseless claim under Texas law and the first-to-file rule should apply. Under the Federal Declaratory Judgement Act (Act), a federal court may declare rights and other legal obligations of any interested party (28 U.S.C. §2201(a)). Under the Act, Congress creates an opportunity, not a duty, to grant appropriate relief to qualifying litigants.
When two cases are pending before two federal courts, the first-to-file rule states the subsequent case may be dismissed if the issues raised by the cases substantially overlap. Cases do not have to be identical. Rather, substantial overlap exists when the core issue is the same or if a majority of the evidence brought would be identical. The Fifth Circuit generally notes the court where the action was first filed is appropriate when the subsequent case filed involves substantially similar issues. However, the Fifth Circuit will deviate from the first-to-file rule when a declaratory judgment is filed in anticipation of a suit, creating an opening for forum shopping and depriving a potential plaintiff of their chosen forum (the Anticipatory Filing Exception).
To apply the Anticipatory Filing Exception, the court looked to Paragon where the court failed to apply the first-to-file rule when a party filed a declaratory action in lieu of responding to a demand letter. Similarly, the court did not apply the first-to-file rule in Bedrock Logistics when a party filed a suit in federal court four days after receiving a settlement offer. Here, Arno’s pre-suit demand letter enclosed a draft of a yet-to-be-filed Georgia complaint, trying to encourage settlement discussions. The court did not find evidence of Epic Tech engaging in improper or abusive tactics. Even so, the court found Epic Tech’s declaratory judgement was anticipatory and deprived Arno from filing suit in the Northern District Court of Georgia.
Although Epic Tech was the first to file in their respective district court, this case shows “winning doesn’t always mean being first.” Vince Lombardi, the famed NFL Coach already knew this when he stated, “winning isn’t everything, it’s the only thing.”
Epic Tech, LLC v. Arno Res., LLC, 2020 U.S. Dist. LEXIS 162276